Pound sterling forecast: GBP to EUR

GBP EUR Steady at Highs but Inflation Still a Risk

The GBP to EUR exchange rate has started the week with a gain of 0.35% as traders await German inflation numbers. The last couple of weeks has seen markets become fixated on inflation as fears of overheating prices have driven bond yields higher. The GBPEUR sold off are soaring to its highest level in almost a year.

Wednesday will see the UK government budget announced and this may be the deciding factor for the pound to euro outlook in the weeks ahead. The Prime Minister has set a cautious reopening strategy for the economy and investors will want to see that Rishi Sunak is not throttling the country’s recovery with excessive taxes.

Bond Yields Will be Watched Closely This Week

A rise in yields on the benchmark 10-year US Treasury bonds last week rippled through markets as markets believe prices could rise more sharply than expected. This could force central banks to raise interest rates earlier than expected.

Bond yields have been rising in Europe too, with the 10-year French bond turning positive for the first time in months, while the German Bund was also higher. Germany’s bond is still in negative territory due to the relative stability and growth prospects in the country.

The inflation numbers from Germany today will help traders to see if negative rates are still warranted. Analysts are expecting a number of 1.2% compared to 1% last month. Investors are concerned that prices rising in lockdowns could mean central banks have to change strategy on reopening.

UK Virus Cases Lowest in Five Months

The UK has seen the lowest number of daily coronavirus infections in five months, with over 7,000 new cases reported on Saturday.

The news comes on the back of the country’s vaccination rollout and Boris Johnson has said that he sees workers returning to their offices “in a few short months”. The economy is expected to open gradually into a full restart around June as second doses of the vaccine are completed in that timeframe.

The UK Chancellor Rishi Sunak will now take the stage on Wednesday to deliver his latest budget. The Chancellor has seen pressure from business groups in many sectors to support their industry, while former Prime Minister David Cameron was among those suggesting that heavy taxation would not be wise. Mr Sunak is reported to be planning a corporate tax hike of 6% to 25% as he seeks to balance the books, following the latest period of heavy government spending.

The Chancellor is also set to raid wealthy pensions with rues on allowances being changed. The GBP to EUR outlook will depend a lot on the balance between reopening growth and stifling constraints.

The pair is trading at 1.1570 and could move with the German inflation reading later this morning. Feel free to get in touch and discuss these factors in further detail for more information about how your currency exchange is likely to be impacted.